New Delhi: Cities in emerging markets like India are likely to offer the biggest commercial opportunity for businesses worldwide in the coming decades, reports PTI quoting a study by the Boston Consulting Group (BCG).
According to the report, the surge in the number and size of emerging market cities, alongside the burgeoning middle class households within them, is creating both new opportunities and challenges for companies.
"The 717 emerging market cities that currently have populations of more than five lakh people, and additional 371 cities that will reach this size by 2030, will constitute the biggest commercial opportunity in the world in the coming decades," the report said.
With dramatic improvements in lives of emerging-market urban residents, the spending power in such cities is increasing rapidly, opening up new avenues for companies.
Emerging market cities may account for 30% of the global private consumption by 2015, creating vast opportunity for businesses to sell their products, it stated.
"Executives tend to focus on 'megacities' of emerging markets, when they need to be shifting their attention to the 'many cities' - the large number of smaller cities that constitute the bulk of future urban-market demand across the emerging markets," BCG senior partner David Michael said.
The massive growth in size and number of emerging market cities would fundamentally change the competitive landscape in many industries, it added.
One-third of the world's population - 2.6 billion people - live in emerging-market cities and by 2030 the number is likely to increase by an additional 1.3 billion.
In contrast, cities in developed markets would add only 100 million new residents in the next 20 years. "Companies need to track and manage the number of cities in which they have a strong presence, not simply the number of countries," Mr Michael added.
Moreover, emerging market cities would need better housing and infrastructure - most urgently, transportation, water, sanitation and electricity.
Driven by huge portion of the demand from Brazil, China, India and Mexico, emerging markets would require an estimated $13.8 trillion in housing investment from 2010-2030.
"The massive infrastructure development needs across so many emerging market cities dwarf anything that the world has seen before," the report stated.
The company faces stiff competition from existing players and is yet to clock any revenues; the promoter group has a number of pending litigations against it and high debt remains a concern
Incorporated in 2006, Jharkhand-based steel manufacturer Electrosteel Steels Ltd (ESL) is entering the capital market to raise between Rs368.77 crore at the lower end of the price band and Rs405.65 crore at the upper band through a 100% book building issue. The company is promoted by Electrosteel Castings Ltd (ECL).
ESL currently procures 30% of its coking coal requirement from its Parbatpur (Jharkhand) unit and 70% from other sources.
The company is setting up a plant near Siyaljori village in Bokaro district of Jharkhand. The proposed plant will have a blast furnace, basic oxygen furnace, billet caster and will utilise the hot rolling route. It will produce 1.2 million tonnes per annum (MTPA) of long steel products, comprising 0.5MTPA of 5.5-12.0mm diameter wire rods in coil form and 0.7MTPA of reinforcement bars in straight lengths and bundled in the range of 8-32mm and plain rounds up to 60mm diameter. The plant will have a 0.33MTPA DI (ductile iron) pipe production facility in the same complex and will be provided with hot metal from the blast furnaces. The plant will also have production facilities for 0.27MTPA of commercial billets and 0.40MTPA of pig iron.It has acquired 1,804.70 acres of land for the proposed plant for future expansion plans.
Promoter ECL has four manufacturing facilities of which two are located at Khardah and Haldia in West Bengal, one at Elavur in Tamil Nadu and a coal washery plant at Parbatpur in Jharkhand.
Price: Rs10-Rs11 per share
No of Shares: 3,68,772,000 equity shares with a green-shoe option of up to 15% of the issue
Issue Size: Rs368.77 crore-Rs405.65 crore
Issue Duration: 21st September-24th September
Listing: BSE and NSE
IPO rating: Three, average fundamentals (CARE)
Book Running Managers: Enam Securities Pvt Ltd, SBI Capital Markets Ltd and Edelweiss Capital
Pre-Issue Promoter and Promoter Group Holding: 38.70%
Post Issue Promoter and Promoter Group Holding: 34%
Post Issue Equity Capital: Rs2,034 crore
P/E ratio: NA (Company has not posted any profits)
Highest in the industry: 55.3
Lowest in the industry: 5.4
Average industry (Composite) P/E: 10.80
There are 61 litigations against the company's promoters with Rs912.38 crore riding on these cases. On 24 December 2009, SEBI passed an order imposing a penalty on promoter company ECL and the individual promoters of ECL for violating insider trading rules. The company procures equipment from China for which it appoints Chinese contractors for integration. However, due to the visa guidelines issued by the Indian government, many of these Chinese contractors had to leave the country causing a slowing down of the projects.
As a new entrant, ESL faces fierce competition from existing players in the DI pipes industry like ECL, Jindal Saw, Tata Metaliks and Electrotherm, which have market share of 53%, 27%, 13% and 7% respectively.
In the steel production territory, it competes with both private and public sector companies. For the financial year 2009 public sector companies such as SAIL, RINL, etc. had a market share of 28% while private sector companies such as Tata Steel, JSW Steel, JSPL etc. had a market share of 72%.
The company has not yet commenced commercial activities and hence has not posted any revenues so far. Commercial operations of the company's projects are not scheduled to commence until 1 October 2010.
The company requires various licenses from central and state governments to commence its projects. It needs environmental approvals from the Ministry of Environment and Forests, and chimney height approvals from the Ministry of Defence and Ministry of Civil Aviation, and ESL is waiting for a mining lease license approval from the Ministry of Environment and Forests for its proposed iron ore mine at Kodolibad, Jharkhand.
ESL was promoted by its promoter ECL to set up a 2.2 MTPA integrated steel and ductile iron spun pipes project in Jharkhand. In order to focus on backward integration, ECL has set up ESL for implementing the integrated steel and DI pipe plant. The company's promoter ECL will supply iron ore and coking coal to ESL on a cost plus 20% basis for a period of 20 years.
The company' promoter ECL is in the business of manufacturing CI Spun Pipes for over four decades and DI Pipes since the last 15 years. ESL's integrated steel plant is located in Siyaljori in Bokaro district (Jharkhand), just 22 km from Bokaro. This belt has a supply of low-cost manpower pool and raw materials, such as dolomite, quartzite, ferro alloys and additives, which reduces its transportation and procurement costs.
The company made a pre-IPO allotment to Franklin Templeton Private Equity Strategy of 5.58 crore shares at a price of Rs10. IL&FS Financial Services too bought 7.50 crore shares in two tranches in the year 2009 at the same price.
Electricity generation and profitability depends on climatic conditions, particularly wind conditions, which can vary dramatically across the seasons and between locations of the wind farms — the company has a limited history of operating and developing such farms
Chennai-based renewable energy power plants developer Orient Green Power Company Ltd (OGPCL) is hitting the market to raise Rs900 crore through a 100% book building issue. The issue size is 19.14 crore shares of the face value of Rs10 each. The shares are being offered in the price band of Rs47 to Rs55 per share. The shares are priced 4.7 times of face value on the lower side and 5.5 times on the higher side.
The IPO is set to open on 21 September 2010 and will close on 24 September 2010. The shares of the company will be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The issue has an IPO grading of 4/5 (CRISIL), indicating that the fundamentals of the IPO are 'above average' relative to other listed equity securities in India. However, the grade is constrained by the poor financial health of state electricity boards, the company's main customers.
OGPCL proposes to use Rs60.75 crore from the net proceeds of the IPO to finance the construction and development of four biomass projects in Narasingpur (10MW), Amritsar (10 MW), Vellore (7.5MW), and Patiala (10MW). Besides, it will fund its subsidiary OGP Rajasthan and BWFPL for the construction and development of a biomass and a wind project at a cost of Rs530.20 crore and will fund its subsidiaries BWFPL, PSR Green and SNEL for repayment of loans taken from IndusInd Bank, and to prepay its existing debt availed from Yes Bank at Rs148.19 crore.
The company generates renewable energy based power focused on developing, owning and operating a diversified portfolio of renewable energy power plants. It sells power from its wind energy projects to private power consumers seeking to supplement state power supplies for captive purposes pursuant to short-term poser purchase agreements (PPAs) in states where such sales are permitted. As of 31 July 2010, its total portfolio of operating projects included 213.03MW of aggregate installed capacity, which comprised 172.53MW of wind energy projects and 40.5MW of biomass projects. Its portfolio of committed and development projects included approximately 836.5MW of prospective capacity, which included an estimated 643MW of wind energy projects, 178.5MW of biomass projects and a 15MW small hydroelectric project.
OGPCL develops wind farms and is currently expanding its presence in Tamil Nadu and developing projects in other locations in India like Gujarat and Maharashtra and internationally, including in Sri Lanka, Croatia, the Czech Republic and Hungary.
The company is promoted by Shriram EPC Ltd (SEPC), Shriram EPC (Singapore) Pte Ltd (SEPC Singapore), and Orient Green Power Pte Ltd (OGPP), Singapore. OGPP and SEPC currently hold 94.74% and 0.14%, respectively, of Orient's share capital. SEPC Singapore is a wholly-owned subsidiary of SEPC and holds 37.70% of the equity share capital of OGPP.
The company reported a net loss of Rs12.24 crore for the year ended 31 March 2010 on a total income of Rs63.21 crore. It had a negative cash flow of Rs4.82 crore in the year ended 31 March 2009. Biomass energy production accounted for 69.23% of its revenue during the year ended 31 March 2010.
There are 32 litigations pertaining to civil, tax, criminal, court summons pending against the company's promoter firm Shriram EPC Ltd.
Electricity generation and profitability depends on climatic conditions, particularly wind conditions, which can vary dramatically across the seasons and between locations of the wind farms. The company has a limited history of operating and developing wind farms and biomass power plants.
The book-running managers to the issue are Axis Bank Ltd, Goldman Sachs (India) Securities Pt Ltd, JM Financial Consultants Pvt Ltd and UBS Securities India Private Ltd.